ESG: Why the term has become indispensable for German companies

In this article, we explain why ESG is gaining relevance and how you can establish and integrate ESG measures in your company.

ESG in 4th place as a driver for transformation needs!

The topic of sustainability and ESG stood out in our #SHIFTHAPPENS2022 study this year. ESG made it into the top 10 as a driver for transformation needs for the first time - in fact, directly into 4th place. Nevertheless, measures with a direct ESG target are currently prioritised at a different level than the management level. Thus, although the topic is known and important, more operational levers still need to be moved to sustainability. We take this as an opportunity to explain the term and why companies should dedicate themselves to the topic of sustainability right now. In doing so, we provide helpful tips on ESG criteria and best practices.

ESG as a transformation driver

What does ESG mean?
The abbreviation ESG stands for Environmental, Social and Governance. This covers the three sustainability-related areas of responsibility of companies: Environmental, social and corporate governance. It evaluates the sustainable contribution a company makes to the economy and society and the extent to which environmental and social aspects are taken into account. The term is often used synonymously with Corporate Social Responsibility (CSR). The concept of ESG consequently aims at how companies serve society and how this affects their current and future results. The term is already established both in the international context and in the financial world. The ESG benchmarks serve investors to assess the sustainable management of companies.

5 reasons why organisations should take ESG and sustainability seriously

  1. Increasing demand from all stakeholders for transparency to disclose ESG factors and manage sustainably. In this year's #SHIFTHAPPENS2022 study, it is again clear that changing customer needs are among the main transformation drivers. Transparency in the ESG area is likely to be an important factor here.

  2. Legal reporting obligations are being tightened and will affect even more companies in the future. The EU's current proposal for a directive on corporate sustainability reporting (CSRD) is intended to expand non-financial reporting by European companies.

  3. Improved performance through sustainable management, e.g., cost reduction through economical use of resources, such as energy and water.

  4. Competitive advantages through customer perception, employee retention and securing future profitability.

  5. ESG is complex and encompasses all companies' functions, levels and activities in any industry. The implementation of sustainable measures is usually time-consuming. Therefore, companies should start early to integrate this point into their strategy.

An overview of tips on how to integrate ESG measures into your organisation in a sustainable way:

E (Environment)
Make your production facilities and offices climate-neutral through e.g. renewable energies as a source of electricity, sustainable construction or green building management. Keep your eyes open when choosing suppliers! From 2023 on, the new EU supply chain law will apply to most companies. Ensure, for example, with the help of your supplier code, that your suppliers also take ESG guidelines into account or consider changing or redesigning individual components if necessary.

S (Social)
Improve the everyday working life and workplace of employees through e.g. flexible working time models, home office, health offers or promotion of sustainable transport options, such as job bike or bus and train.
Make a sustainable commitment as a company to social projects such as SOS Children's Villages or participate in a charity run.

G (Governance)
Implement equal opportunities and diversity measures. Draft policies and offer HR staff the opportunity to attend diversity seminars. Focus on measures to ensure your company's long-term profitable success without harming current and future generations. Anchor sustainability management and business ethics at the board and supervisory board level and reflect this in your corporate values. Even if this requires some investment, it is worth the effort.

Best Practice Examples of ESG Measures:

Vaude produces outdoor and sports articles out of old car tires or plastic waste, which can be recycled in turn. This circular economy is a perfect example of ESG.

Kärcher manufactures products for the cleaning market worldwide through a CO2-neutral, sustainable process. The company relies on green electricity and offsets unavoidable emissions by supporting climate protection projects.

The German HR software Personio operates offices with green electricity, where vegetarian and vegan canteens are planned. In addition, the company offers so-called Impact Days to participate in social and ecological projects as a team. So in this case, not only the environmental aspect is in the foreground, but also the social component.

ESG issues and criteria have also reached the management level in the automotive industry. Volvo, for example, has set itself the goal of becoming climate neutral and introducing a circular economy by focusing on resource efficiency and waste avoidance.

Capital management companies such as Allianz Global Investors use ESG criteria to conduct portfolio analyses of investments. For example, Allianz Global Invest manages sustainable and responsible investment funds and enables money to be invested sustainably through these investments.

Microsoft’s software company also sets a good example: the ESG criteria are considered in corporate management, especially in the social area. Microsoft is sustainably committed to human rights and the equality of the LGBTQ+ community and offers its employees internal childcare, among other things.

Want to learn more about the current transformation happening? In our #SHIFTHAPPENS2023 study, you will get exciting insights from over 460 well-known experts on the latest transformation activities, drivers, and measures!


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